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DeVry Education Beats on Q2 Earnings, Q3 Guidance Dull

DeVry Education Group Inc.DV , the education company reported dismal second-quarter fiscal 2016 results. Though the company finally launched the much anticipated 22 connected classroom environment; DeVry University enrollments continued to be weak in the reported quarter. The company managed to reduce cost considerably, but gave a bleak outlook for the third quarter of fiscal 2016 and the full year.

Despite beating the Zacks Consensus Estimate of 66 cents by 3%, second-quarter adjusted earnings of 68 cents per share declined 9.3% year over year due to weak sales at DeVry University.

Adjusted earnings exclude an after-tax charge associated with workforce reduction and consolidation of real estate, and impairment charges related to Carrington College.

Devry Education Group Inc. (DV) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

DeVry's quarterly net sales of $456.2 million lagged the Zacks Consensus Estimate of $457 million by 0.2% and declined 5.9% year over year. Quarterly results suffered mostly due to the repositioning of DeVry University and currency headwinds in Brazil.

The company's total enrollment increased 15.1% year over year in the second quarter, while new enrollment decreased 9.8%.

Segment Details

Business, Technology and Management: This segment includes operations of DeVry University, which offers both graduate and undergraduate courses.

The segment recorded revenues of $160.2 million, down 23.8% year over year due to weak enrollment trends at DeVry University. Adjusted operating income was $8.9 million, down 19.7% year over year.

For the Nov 2015 session, total enrollment and new enrollment of undergraduate students declined 21.2% and 31.4%, respectively. On a same-campus basis (excluding campuses moving to an online-only delivery), total enrollment and new enrollment of undergraduate students dropped 14.4% and 25.0%, respectively.

For the Jan 2016 session, total enrollment and new enrollment of undergraduate students fell 22.7% and 29.1%, respectively. On a same-campus basis (excluding campuses moving to an online-only delivery), total enrollment and new enrollment of undergraduate students decreased 17.2% and 23.3%, respectively.

For the Nov 2015 session, total enrollment of graduate course takers, including the Keller Graduate School of Management, slumped 17.7% during the quarter. For the Jan 2016 session, total enrollment of graduate course takers tumbled 18.1%.

DeVry University starts have been declining for several years and are expected to remain a challenge in the near term as prospective students are still reluctant to incur debt for higher degree. The competitive landscape also remains intense. The company is undertaking several student-focused initiatives at DeVry University to return to growth and transform the business. However, the efforts do not seem to paying off yet.

During the quarter, DeVry University introduced the 22 connected classroom environment, which will provide students more flexible scheduling. While DeVry University continued to implement transformation strategies, it also reduced its costs significantly through disciplined expense management. The company expects DeVry University to continue reducing expenses, leading to cost savings of $150 million in 2016.

Medical and Healthcare: Medical and Healthcare is the company's largest segment at present. It consists of DeVry Medical International, Chamberlain College of Nursing and Carrington College.

The segment reported revenues of $234.4 million, up 9.5% year over year, driven by strong enrollment at Chamberlain College of Nursing. Adjusted operating income was $42.2 million, up 10.8%.

At Chamberlain College of Nursing, revenues escalated 21.3% on the back of an increasing market share, new campus openings and solid enrollment growth of post-licensure programs (including the Family Nurse Practitioner and RN to BSN program). This increase was driven by solid demand for nurses with advanced degrees.

For the Nov 2015 session, total enrollment surged 23.3%, while new enrollment soared 20.6%. For the Jan 2016 session, new enrollment grew 16.6%. Total students enrollment rose 21.1%. Chamberlain started operations at a new campus in Charlotte, NC. Moreover, it is set to open three new campuses in fiscal 2016.

At DeVry Medical International, revenues increased 2.0% to $91.9 million during the second quarter of fiscal 2016. Total enrollment for the Jan 2016 session rose 3.7%. However, new enrollment dropped 7.5%.

At Carrington College, revenues inched up 0.5% in the quarter. However, total enrollment decreased 3.1%, while new enrollments fell 4.8%.

International and Professional Education: The segment includes professional exam review and training operations of Becker Professional Review and DeVry Brasil.

The segment recorded revenues of $62.4 million, up 1.9% year over year. However, unfavorable Brazilian currency translations hurt revenues by $15 million. On a constant currency basis, revenues surged 27%.

DeVry Brasil revenues remained flat year over year, hurt by unfavorable currency. On a constant currency basis, revenues escalated 38.5% on the back of the Faci and Damásio acquisitions, as well as improved organic growth.

During the quarter, DeVry Brasil acquired the Brazilian education company, Grupo Ibmec Educacional S.A. This acquisition is expected to strengthen DeVry's presence in Northern Brazil, where the company already caters to about 15,000 students.

On the other hand, Becker Professional Education revenues increased 5.5% year over year. This increase was driven by solid demand for the CPA test preparation programs.

Third-Quarter Fiscal 2016 Outlook

For the third quarter of fiscal 2016, the company expects revenues to decrease about 4-5% year over year. Revenue is expected to be hurt due to the transformation of DeVry University and soft revenues at Carrington College, offsetting top-line growth at other DeVry institutions. Operating cost is expected to decline about 3-4%.

Fiscal 2016 Outlook

For fiscal 2016, the company expects revenues to decline 4-5% and adjusted earnings to fall 5-6%.

DeVry Education Group carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other favorably ranked stocks in the education industry include Lincoln Educational Services Corporation LINC , Bridgepoint Education, Inc. BPI and K12, Inc. LRN . All the three companies have the same Zacks Rank as DeVry Education Group.

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DEVRY EDUCATION (DV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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